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NY Federal Court Blocks Retroactive Judgment Interest Law

judgment interestA New York federal judge on April 28 temporarily enjoined three New York sheriffs from refusing to enforce judgment executions which seek to collect judgment interest “calculated with the interest rate in effect at the time the judgment was obtained.”

The temporary injunction applies to the sheriffs of Chautauqua, Erie, and Niagara counties.

A copy of the opinion in Greater Chautauqua Federal Credit Union et al. v. Marks et al. is here: Link to Opinion.

On Dec. 31, 2021, New York legislation was signed into law lowering judgment interest on “consumer debt” from nine to two percent. The law takes effect on April 30.

While this poses no concern for covered judgments entered after April 29, the law also applies to unsatisfied judgments retroactively “from the date of the entry of judgment on any part of a judgment entered before [April 30, 2022].”

While accrued but unpaid interest at nine percent will have to be recalculated at the new rate of two percent, other interpretations suggest that even paid interest on unsatisfied judgments is subject to reduction.

Three New York credit unions filed an action in federal court alleging the law is an unconstitutional taking and requested a preliminary injunction to prevent its enforcement.

ONLY THREE COUNTY SHERIFFS ENJOINED

There are 62 counties with 62 sheriffs in New York. This order enjoins only three. The enjoined sheriffs are in three contiguous counties in western New York along Lake Erie and includes Buffalo, New York.

With a little over 19 million New Yorkers, the affected counties are home to just over 1.3 million people. The court, though, required that its order be served on all New York sheriffs.

RETROACTIVE REDUCTION LIKELY UNCONSTITUTIONAL

At this stage of the litigation, the court was asked only to determine whether the plaintiffs, the three credit unions, are likely to prevail on their claims. The court found that the retroactive judgment interest reduction is likely an unconstitutional “regulatory taking.”

First, it determined that interest on unsatisfied judgments is the property of the judgment creditor and so it is “constitutionally protected.”

Second, although the law is not akin to a condemnation or appropriation of property, its effect is “so onerous that its effect is tantamount to a direct appropriation. . .”

The case will continue to be litigated and the injunction will continue until the court (or an appellate court) decides otherwise.

A CONFUSING LAW THAT DESERVES JUDICIAL REVIEW

There are several ways to interpret the retroactive judgment interest reduction under this recently adopted law and judgment creditors are struggling to determine its scope. While covered judgments paid and satisfied prior to April 30 are not subject to adjustment, unpaid judgments present a more complex problem.

The text of the law is subject to at least two conflicting interpretations on how paid interest on unsatisfied judgments must be treated. While the law does not require a creditor to return interest paid at the nine percent rate, new sections (a)(ii) and (c) of CPLR § 5004 are confusing and unclear as to how such paid interest on unsatisfied judgments is to be treated beginning April 30.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee. For more information, see https://mauricewutscher.com/attorneys/donald-maurice/

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